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APG’s Kemna Wants Euro Bonds in Two Years Amid ‘Subdued’ Returns

November 15, 2011

Nov. 4 (Bloomberg) -- Angelien Kemna, who oversees 275 billion euros ($380 billion) of Dutch pension money, says the euro region must sell common bonds within two years, and predicted “subdued” investment returns until then.

“As an investor with large obligations in euros I want the prospect of a very deep and liquid euro bond market,” Kemna, the 54-year-old chief investment officer of APG Groep NV, said in an interview in Amsterdam. “As long as that is part of the final picture, not in 10 years but in one or two, I am willing to accept a muddle-through scenario in which we continue to see small steps in that direction.”

Kemna said “a complete disintegration of the euro” where countries besides Greece leave the currency union is no longer impossible, though APG can’t risk betting on such a scenario in case policy makers stem the crisis and her funds are crippled by missing a market rebound.

Her take on joint euro bonds puts her at odds with Dutch central bank President Klaas Knot, who sees them as an option only in the long run, and German Chancellor Angela Merkel, who last week repeated her rejection of joint bonds, saying they wouldn’t maintain a top credit rating.

Without prospects for euro bonds, APG may reconsider its asset allocation and move money away from Europe, Kemna said.

Euro bonds, proposed by policy makers including European Commission President Jose Barroso, would be sold jointly by the euro area’s 17 nations to finance all nations’ debt in the currency union, and would be jointly guaranteed by all members. European banks, life insurers and pension funds would benefit from a “deep euro bond market” that offers investors an alternative” to U.S. Treasuries, Kemna said.

‘Collective Patience’

Kemna said “collective patience is needed” to get through the next few years and allow the orderly creation of a euro bond market, and “sufficiently isolate Greece to manage out contagion risks” as countries cut debt.

Greek Prime Minister George Papandreou sent European stock markets plunging this week after surprising his European Union partners and saying he would call a referendum, before reversing course. The referendum call spurred speculation the bailout package reached on Oct. 27 would founder.

Stichting Pensioenfonds ABP, APG’s top customer, had about 500 million euros in Greek inflation-linked bonds maturing in 2025 and 2030 at the end of May. That’s down from the 2.3 billion euros in Greek government debt it held in 2009.

Fund Returns

Kemna said average returns between 6 and 7 percent are possible over the coming two decades, compared with APG’s average annual return of 7 percent over the past 20 years. She said that up until October, all her clients’ portfolios had a “small” positive return for the year.

Dutch pension funds are required to mark their investments to market. In 2010, ABP held Italian government bonds with a market value of 10 billion euros, its second-largest investment, according to a report on the fund’s website.

Kemna declined to say whether APG had changed its investments following last week’s bailout. APG last year had a loss of 424 million euros on Greek debt, including a 160 million-euro loss on the sale of Greek securities, while Greek index-linked bonds fell 264 million euros in value.

Most Powerful Woman

Kemna, who became APG’s investment chief in November 2009, was named the Netherlands’ most powerful woman this year by Opzij magazine, beating out Neelie Kroes, the EU’s commissioner for digital affairs, Wolters Kluwer NV Chief Executive Officer Nancy McKinstry and model Doutzen Kroes.

Previously, she was director of investments and account management at Rabobank Groep’s Robeco unit and headed ING Groep NV’s European investment-management unit until 2007. She says time she spent in the U.S. during the height of the 2008 crisis, seeing how some retirees lost all their income in an individual pension system, motivated her to move to APG.

The Netherlands has the euro area’s biggest pension industry, with 790 billion euros in assets at the end of the first quarter, data from the Dutch and European central banks show. The assets are held in collective plans run by industry, company and occupational pension funds. ABP, the biggest Dutch pension manager and third-largest in the world, runs 235 billion euros in assets for teachers and civil servants.

The main challenge to the Dutch pension system is higher life expectancy, she said.

“Those influences are much bigger and more structural than a crisis,” Kemna said. “In the long term I am much less concerned about investment returns than the fact that we live longer and have to pay for it.”

--Editors: Keith Campbell, Edward Evans.

To contact the reporter on this story: Maud van Gaal in Amsterdam at

To contact the editor responsible for this story: Frank Connelly at

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